APR vs APY: what is the difference?

What do APR and APY each measure?

The US Consumer Financial Protection Bureau describes a loan's APR as its interest rate plus certain other charges, such as origination fees, and tells borrowers to compare APRs with APRs, not with plain interest rates. APY comes from US savings rules: Regulation DD defines it as the total interest paid on an account based on the rate and how often it compounds.

Compounding, as Investor.gov puts it, means earning interest on your principal and on interest you have already earned. The more often that happens, the wider the gap between the two numbers. The table uses a 6% rate, calculated in Python.

How do you convert APR to APY?

If a rate is compounded n times a year, APY = (1 + APR ÷ n)ⁿ − 1. Regulation DD's official version works backwards from the interest actually paid: APY = 100 × [(1 + interest ÷ principal)^{365 ÷ days in term} − 1]. Our APR to APY converter does the arithmetic for you.

Why does the difference matter for crypto yields?

Lending protocols and staking services usually quote yearly rates, sometimes as APR and sometimes as APY. An APY figure quietly assumes two things: that the rate stays the same for a full year and that every payout is reinvested. Variable rates rarely sit still, so treat the number as a snapshot, not a forecast. The yield itself comes from somewhere — borrowers, validators or token rewards — and each source carries its own risk, covered in DeFi lending explained and what is staking.

For how central-bank rates ripple through all of this, see how interest rates affect markets.

What mistakes do people make when comparing rates?

• Comparing an APR with an APY. Convert one into the other first.
• Forgetting fees. A loan APR includes some lender fees; a yield figure usually does not include withdrawal or network fees.
• Reading a variable rate as fixed. A high APY on the day you look says little about next month.